What happens if you’re injured at work? You might not be able to pay your bills. While you could live off of your savings, that savings will only take you so far, and what if you don’t have any savings? This is where an income protection policy comes into play. Income protection policies, sometimes referred to as “disability policies,” pays you money when you are unable to work due to an illness or injury. Here’s how to compare policies so you get the most for your money:
Analyse The Cost of Coverage
One of the most important considerations when shopping for income protection insurance is the cost of the cover. It seems obvious, but this will make or break your decision to pick up insurance. The cost of insurance cover will be driven by a variety of factors including the provider you decide to go with, the level of coverage you pick up, and the length of coverage you want.
While you might want the very best plan on the market, you might not be able to afford it. Remember, the best income protection policy is the one that’s in-force when you need it. If you can’t comfortably make premium payments, opt for a lower-cost plan.
This might require that you look at 10 or 20 different insurance companies. That’s fine. This is going to take some time to sort through, but you’ll be glad you did.
Only Get What You Need
It’s easy to over-buy insurance cover, but more is not better. You need to figure out how much of your income is spent on essential bills like your rent, mortgage, utilities, groceries, etc. Don’t try to include things like savings and miscellaneous expenses for entertainment. Why not? Because, when you’re disabled, you’re trying to cover the basic expenses that will allow you to survive and then get back to work.
If you start thinking about income replacement coverage as a “source of income,” you’ll over-buy insurance coverage. If you think about it as a stop-gap measure to get yourself back on your feet, you’ll end up with proper coverage.
Compare Features of Various Plans
Plans can vary in terms of how much coverage they provide. In general, however, insurance providers will insure you for up to 75 per cent of your regular income. In addition to this, your income replacement plan will be offered in varying lengths of coverage.
For example, let’s assume you want to insure your income in the event of illness of injury. You approach an insurance company. The company offers you a 3 month policy, 6 month policy, and a one year policy. What this means is that the insurer will cover you for the time indicated on the policy – 3, months, 6 months, or a year in this example.
The length of coverage has a big impact on the premium and benefits you receive. The longer the coverage, the more money you will get if you have a disability, and thus the higher your premium. Since most disabilities are short-term in nature, it often makes sense to keep the policy’s benefit period short as well. However, the exact length of coverage you get should be driven by what you think you will need.
Helen Akin is a former insurance broker. Now retired, she likes to give out helpful advice on various blog sites. Get your >Life Insurance questions answered here.
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